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Editor's Letter: Sign Of The Times

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Banks are once again at the center of the debate on the state of global economies. The US Federal Reserve recently released the highly detailed results of the stress tests it performed on 18 major US financial institutions—and they were quite surprising. Some of the best-known American banks were openly criticized for their capital inadequacy and were asked to “remediate immediately the weaknesses” in their plans and resubmit them by the end of September.

The proposed bailout of Cypriot banks announced in mid-March has reopened the debate on the solidity of European banking and the fear of potential spillover effects to other countries. As we went to press, the proposed levy of up to 10% on all bank deposits was rejected by the Cypriot Parliament. But the fact is that the very idea of a levy shook the markets, which is a reminder of the strong correlation between markets and banking systems—particularly since the decision affects a country representing only 0.2% of the eurozone GDP.

Even the reported amount of a bank’s assets has become a political issue. A reader alerted us recently that the data we present on the largest banks in the world, as provided to us mostly by the ratings agencies, have become contentious in Congress in Washington. This is because the different accounting standards, GAAP versus IFRS, do not account in the same way for derivatives positions of a bank. A ranking of global banks by assets that includes the derivatives positions of US banks would place them much higher overall—and likely change the risk profile of those banks. We do not have a position on this debate at present, except to point out that it reemphasizes the need for continued efforts toward harmonizing accounting standards.

In our cover story we focus on the so-called “currency wars” and the effects that unilateral currency manipulation could have on global trade and on the macro economy in general. We present, as well, our annual Middle East supplement and our annual selection of the best global investment banks. And we launch our biannual update on the safest banks in the world. On the safest banks list, which is based on the same asset data as last October's, there are big changes—primarily as a result of downgrades. For us, however, the most striking news the report highlights is the fact that there are no longer any private-sector banks holding a Triple-A rating from any of the three biggest ratings agencies. It is clearly a sign of the times.